HMRC clamps down on transfer pricing by pursuing tax avoiders

News Article - 30 November 2009
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HMRC is continuing to clamp down on tax avoiders to maximise tax revenues in the economic downturn. AccountancyAge recently reported HMRC is aggressively pursuing companies accused of artificially setting low prices on internal contributions transfers to reduce taxable profits. Whilst in the past these cases would generally end with settlements, an increasing number are being heard in the courts. From 2006 to 2007, income from these transfer pricing disputes doubled to £470m, and this is expected to rise again as a greater number of disputes are pursued aggressively.

The clamp down on transfer pricing is seen as a continuation of HMRC’s increasingly aggressive stance on tax avoidance. In April 89% of respondents in an ACCA survey believed HMRC was more aggressive than ever, and more disputes are expected to arise this year than ever before. A dedicated Tax Tribunal service was launched earlier this year, consolidating four previously separate tribunals and allowing them to focus their enquiries more effectively. On the matter of transfer pricing, there are at least 1,000 separate disputes waiting to go to tribunal.

HMRC’s aggressive stance has been met with action from many of the World’s largest companies. Deloitte – one of the Big Four accountancy firms – feel litigation will become increasingly common during the economic downturn, and have set up a new tax disputes group that consists of six partners and forty staff members. The group will help Deloitte’s clients respond to HMRC’s radical new approach to tax avoidance claims.

Whilst the current focus is on transfer pricing disputes, HMRC is pursuing all tax avoiders far more aggressively than in the past. Any financial irregularities discovered during audit may therefore be dealt with more harshly than before. If evidence of irregularities is found, settlements will be unlikely as HMRC pushes for cases to come to court. This may have wide-reaching affects on profitability and reputation for a company.

Ensuring total transparency of financial records is essential, and will help reduce the chance of poor communication or error being mistaken for deliberate tax evasion by HMRC. Business and accounting software from Access is designed with transparency in mind. The ability to automatically flag up financial anomalies will help protect against unwarranted litigation and the associated negative impact on a company’s image. Two-year’s worth of financial statements can be kept open at any one time in Access Dimensions, allowing a full audit trail to be easily identified. And with the ability to keep notes with every financial transaction, the audit trail is going to stand up under scrutiny.

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